Retail's New Grinch: A Sandy-Snarled Supply Chain

Sandy Wreaks Havoc, Economic Impact Not Yet Clear
Mandel Ngan | AFP | Getty Images

It's the ultimate ripple effect.

Super Storm Sandy disrupted transportation. Everything from air to land to sea came to a halt.

It disrupted power. At the peak, more than 8.5 million houses and businesses along the eastern seaboard lost power. Without power, gas stations became inoperable and that led to traffic jams whenever gasoline was available.

While no storm is ever welcome, Sandy's timing, along with the nor'easter that followed, couldn't be worse for retailers, who are preparing for their busiest time of the year.

With just two weeks to go until Black Friday unofficially kicks off the 2012 holiday season, retailers are awaiting final inventory shipments for the holidays. (Read More: Holiday Spending Outlook Gets Merrier...Even With Sandy.)

But before the storm and in its aftermath, retailers were scrambling to get the right inventory on the shelves. Instead of focusing on holiday gift items, the focus shifted to items such as batteries, bottled water and generators.

Consumers are getting back on their feet, retailers are getting power back and employees are heading back to work, but retail supply chains are still playing catch up. Empty shelves are going to frustrate consumers, and be a blow to retailers still recovering from a drop in sales due to Sandy.

Eastern railroad volume saw significant disruptions in the wake of Sandy and the impact rippled at least modestly throughout the nation. Railroad CSX said total traffic contracted 14.1 percent sequentially due to the impact of Sandy, and volumes were 11 percent below the third-quarter weekly run rate.

New York area ports are the third largest in the country — last year alone they handled $208 billion in cargo.

Then, there are the airports, on a typical day, JFK and Newark airport's air cargo operations combined see more than 2,200 plane movements connecting hundreds of global cities and operate around the clock. Sandy caused both airports to close to all traffic, including cargo for 36 hours. (Read More: A Storm-Battered Supply Chain Threatens Holiday Shopping.)

Fortunately, FedEx said it was able to divert much of its planes to Memphis, Tenn., during the closures.

On Thursday, the company said Fedex Express and FedEx Ground have "near-normal pickup and delivery operations in areas affected by Super Storm Sandy and Winter Storm Athena. However, localized delays may exist in areas severely impacted by the storms. As customers return home or reopen their businesses, we are making deliveries to them."

Chris Merritt, vice president of Supply Chain Solutions for Ryder, said, "Our distribution operations in the impacted area that support retail clients are now all back up and running and we are working with clients to get the right product into stores in time for Black Friday. However, in general, there is a backup of product in motion, whether it be at the ports or in distribution centers. With that, it will be a challenge for stores to take a week's worth of inventory in a day. So there are still risks for shortages on the shelf."

Shortages on the shelf will add insult to injury to a number of retailers. NPD Group said brick-and-mortar shopping visits in the New York, New Jersey and Connecticut region fell 7 percent last week compared to the five-week average, and it wasn't shifted online. (Read More: Gobble That Turkey—Walmart Moves Black Friday Earlier.)

Online buying visits in the Northeast dropped 4 percent, according to NPD Group. Without power, shopping online becomes impossible, unless consumers use mobile devices and tablets, but eventually those need recharged, and when consumers have homes filled with water, and trees crushing property, shopping becomes less of a priority.

The loss in the number of shopping visits translates into a very real loss in revenue. Mastercard Spending Pulse said for the week of Oct. 28 to Nov. 3, initial sales estimates are $15 billion compared to a typical rate of about $18.7 billion in the Mid-Atlantic and Northeast regions, or a drop of 24 percent in sales.

Analysts said some of those purchases may simply be delayed, though it's also believed that some of those sales will be forever lost. Retailers are hoping Sandy won't end up being the Grinch that stole Christmas, too.

-By Courtney Reagan, CNBC Reporter; Follow her @CourtReagan.

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